Section 325
Section 325: assessment as a firm
Section 325 lays down the paperwork conditions a partnership must satisfy to be assessed "as a firm" for tax purposes, rather than in some other capacity - centred on having a written partnership instrument that specifies each partner's share, filed with the firm's return.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
Conditions for firm-status assessment
A firm is assessed as a firm for the Act's purposes if: the partnership is evidenced by an instrument; and the individual shares of the partners are specified in that instrument.
A certified copy of that partnership instrument must accompany the firm's return of income for the tax year in respect of which firm-status assessment is first sought.
The copy must be certified in writing by all partners (excluding minors) or, where the return is made after dissolution of the firm, by all persons (excluding minors) who were partners immediately before dissolution, and by the legal representative of any deceased partner.
Continuity across years
Once a firm is assessed as such for a tax year, it is assessed in the same capacity for every subsequent year, provided there is no change in the firm's constitution or the partners' shares as evidenced by the instrument on which firm-status assessment was first sought.
If such a change occurs during a tax year, the firm must furnish a certified copy of the revised partnership instrument with its return for that year, and Section 325's requirements apply accordingly.
Consequence of a failure specified in section 271
Irrespective of any other provision of the Act, where a firm has, for a tax year, a failure of the kind mentioned in section 271: no deduction is allowed, in computing income chargeable under "Profits and gains of business or profession", for any payment of interest, salary, bonus, commission or remuneration (by whatever name called) made by the firm to a partner; and such payment is not chargeable to income-tax under section 26(2)(g).
Frequently asked questions
What must a firm do to be assessed as a firm rather than some other status?
Under Section 325(1) and (2), the partnership must be evidenced by a written instrument specifying each partner's individual share, and a certified copy of that instrument must accompany the firm's return of income for the year firm-status is first sought.
Does a firm need to refile its partnership instrument every year?
No - Section 325(4) carries forward firm-status assessment year after year automatically, as long as there is no change in the firm's constitution or the partners' shares. If there is a change, Section 325(5) requires a certified copy of the revised instrument with that year's return.
What happens if a firm has a compliance failure under section 271?
Under Section 325(6), the firm loses the deduction for any interest, salary, bonus, commission or remuneration paid to partners, and that payment also stays outside the partners' taxable income under section 26(2)(g).
Related sections
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Get help with partnership firm tax assessmentLast updated 9 September 2026